Swapping Linear Technology (LLTC) for ADP

The whole idea behind Quantigence has been to make dividend growth investing more rules based and less subjective. We want as little portfolio turnover as possible once we have made our 30 selections. With that said, sometimes we will have corporate events that require decision making.

It was announced today that one of our technology industry holdings, Linear Technology Corporation (LLTC), will be acquired by a company called Analog Devices (ADI). While ADI has a track record of paying and increasing dividends for 14 years, this doesn’t meet our threshold of increasing dividends for at least 20 years running.

If you recall last month when we analyzed the information technology sector, we had to choose between LLTC and ADP. We ended up choosing LLTC because their line of business was the least like that of IBM which we are already holding. IBM if you recall has the highest Q-Score of any stock in our universe. Now that LLTC has been acquired, we can easily see what needs to be done. As soon as the LLTC transaction closes, we’ll begin accumulating a position in ADP. Since we only just started buying LLTC, this isn’t a huge deal though we wish we could have profited from the +29% increase in share price that took effect when the acquisition announcement was made.

ADP is one of the world’s largest providers of “human capital management (HCM)” which essentially means they are offer outsourced HR solutions. The term “human capital” alone starts to sound annoying. In our current prestigious finance firm where we hold our day jobs, there is no function that wastes more space and causes more problems than HR. If you can outsource whatever value HR thinks they can provide, then you’re on the right track. Over 80% of Fortune 500 companies use ADP and they pay 1 in 6 workers in the U.S.

We’re going to wait for the LLTC acquisition to take effect and then sell our small lot of shares that we started purchasing. We’ll then begin accumulating ADP with monthly buy orders of $550 which is what we’ll need to reach a $13,333 position size for ADP in 2 years’ time.

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